Stages of Planning

The three principal sources of retirement income are typically Social Security, retirement plans and personal savings. If you find that the money you'll receive from all your sources of income won't cover your immediate needs or be sufficient to allow you to do the things you had planned, you may need to postpone retirement if that's possible, cut back on your current spending habits, or think about increasing your income by consulting for your former employer or taking a part-time job in a different field.

The Benefits of Social Security

Social Security provides monthly income to retired and disabled workers and their families. Everyone who will be eligible to receive Social Security must contribute a portion of their earnings to the system for a minimum of 40 quarters through a process called withholding. Most people pay into the system throughout their working life.

You may begin collecting benefits when you turn 62, if you've worked for at least 10 years or are married to someone who has. But, if you wait until full retirement age, which differs depending on the year you were born, you'll receive the full Social Security benefit for which you're eligible. This amount, which is based on your earnings over 35 years, averages about $1,000 per month. People born before 1938 qualified at 65. That age increased incrementally to 66 for people born between 1943 and 1954 and will increase again until it reaches 67 for those born in 1960 and later.

To find more information about Social Security and the benefits you're eligible to receive, visit the Social Security Web site at www.ssa.gov.

Regardless of how early or late you're beginning to save, investing in one or more retirement plans for which you're eligible not only makes the process easier, but also allows you to benefit from tax-deferred or tax-free investing.

You don't pay annual income taxes on investment earnings in a tax-deferred account, such as a traditional IRA or employer-sponsored plan, until you withdraw money, usually after you retire. For many people, contributions are tax-deferred as well, which reduces current income taxes. And, if you invest in a tax-free retirement plan, such as a Roth IRA or a Roth 401(k) or 403(b), you won't owe taxes on any earnings you accumulate in your account, as long as you follow the withdrawal rules.

These tax breaks help your investments grow at a quicker rate than if you invested the same amount in a taxable account, such as a traditional brokerage account, where you earned the same average return but withdrew earnings each year to pay the income taxes that were due.